M. Smith is studying the internal control of Pooh Company. Smith has identified client ver...

M. Smith is studying the internal control of Pooh Company. Smith has identified client verification of sales invoices as an important control and, based on the acceptable level of control risk and experience from prior audits, has made the following assessments:

a. What is the appropriate sample size?

b. Ignore your answer from A. Assume that Smith examined a sample of 80 items and found two deviations. Calculate the following measures:

(1) Sample rate of deviation.

(2) Upper limit rate of deviation.

(3) Allowance for sampling risk.

c. What is Smith’s initial conclusion regarding Pooh Company’s internal control?

d. What possible actions are available to Smith with respect to Pooh Company’s internal control?